Rule of law, property rights, and other economically sound institutions key to prosperity for development in resource-rich countries

VANCOUVER, BC-Developing nations can benefit from natural
resource development if they have a basic level of sound
economic institutions like rule of law, property rights, open
markets, and an independent judiciary, concludes a new study
from the Fraser Institute, one of Canada's leading economic
think-tanks.

"Sound economic institutions and the opportunity for people
and nations to benefit from resource wealth are inextricably
connected," said Fred McMahon, Fraser Institute director of the
Centre for Trade and Globalization studies.

The study,
Economic Freedom and the "Resource Curse"
, follows the International Monetary Fund's recent publication
on institutions,
World Economic Outlook: Building Institutions
, in using the Fraser Institute's economic freedom index as its
key measure for these institutional qualities.

The peer-reviewed Fraser Institute report offers an
empirical analysis weighing countries' resource abundances
against the Economic Freedom of the World index to determine
the impact of institutions on economic growth and how
institutions interact with natural resources. Of the four
categories of natural resources-fuel, food, agricultural raw
materials, and ores and metals-only ores and metals were found
to have a significant effect on economic growth.

"The good news is that even relatively low levels of
economic freedom allow nations to benefit from resources, but
the higher the level, the greater the benefit," McMahon
said.

The study's recommendations include:

Improving the rule of law
to protect property rights, encourage investment, and reduce
corruption. Without security of property rights and proper
mechanisms for settling disputes, the market-exchange system
is completely undermined.

Removing trade barriers.
Closed markets limit the investment opportunities that
natural resources can create since businesses can serve only
a local market.

Simplifying business regulation
to encourage investment and business creation by eliminating
unnecessary regulatory barriers, reducing corruption, and
therefore decreasing the administrative costs of
businesses.

"Many nations such as Canada, the United States, Australia,
and New Zealand have historically built prosperity and reduced
poverty by resource development," McMahon said.

"Today, many nations benefit from both strong institutions
and resource wealth, nations like Chile, Brazil, Thailand, and
the Philippines."